PG&E could face enhanced fines in San Bruno blast

Utility denies guilt - law could boost fines

Updated 7:26 am, Tuesday, April 22, 2014

Federal prosecutors said Monday they intend to amend their indictment against Pacific Gas and Electric Co. to seek enhanced fines that could go well beyond the $6 million allowed based on the 12 felony charges the utility faces in the 2010 San Bruno pipeline blast.

At a brief arraignment hearing, an attorney for PG&E pleaded not guilty on behalf of the company. U.S. Magistrate Joseph Spero then noted a request by Assistant U.S. Attorney Stacey Geis to seek special fines against the company stemming from the Sept. 9, 2010, explosion that killed eight people, injured dozens and destroyed 38 homes.

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Geis announced that prosecutors plan to invoke a provision of federal law that allows the government to collect special fines - in cases involving death and environmental disaster - of twice the profit associated with the alleged conduct or twice the associated loss suffered by victims, whichever is greater. The law allows for exceptions, however, if such a fine would "complicate or prolong the sentencing process."

It is not clear just how much those fines might be, but the sum would be limited to the profit or loss associated with conduct as defined in the indictment, a period of conduct that began in 2003 and lasted until 2010. Any money collected would be set aside and could be used in such areas as pipeline safety or victim compensation.

PG&E stands accused of violating the U.S. Pipeline Safety Act by deliberately relying on flawed records to vouch for the safety of three of its pipelines. In a status hearing later on Monday, Geis said investigators have amassed 10 million pages of evidence in the case. A status hearing on the case is set for June 2.

The company "knowingly and intentionally relied on incomplete information" when it decided not to test its lines - including a portion of Line 132 north of where the blast occurred - after incidents in 2009 when the pressure exceeded federal limits, according to the indictment.

The act requires previously untested lines to be tested with high pressure water or checked with in-line probes known as pigs. Instead, PG&E relied on above-ground methods only capable of checking for corrosion, according to the charges.

PG&E's lead attorney, Steven Bauer, told Spero that he was appearing on behalf of the utility with permission of its board of directors and denied the charges.

Full review of facts

After the hearing, the company issued a statement that indicated it did not believe any of its employees intentionally violated the regulations, calling the blast "a tragic accident and we're accountable for that."

"While we don't believe any employee intentionally violated federal pipeline safety regulations, the legal process will ensure that all of the facts related to this tragic event are fully reviewed," the company said.

After the hearing, San Bruno City Manager Connie Jackson said the city welcomes the prospect of enhanced federal fines that will be used to pay for improvements to PG&E's troubled system.

"We believe that action will hold PG&E further accountable for decades of neglect," Jackson said, adding that greater fines, if imposed, will be a "message not only to that corporation but the entire industry" that such conduct will not be tolerated.

Steven Meyers, an attorney representing the city in its action against PG&E, said any money that will be gained by prosecutorswill not go to individuals but to pay for more safety projects. "The city of San Bruno is not interested in any money," he said, but wants to "increase the safety and reliability of the system."

He said the city, as a wronged party, will be allowed to participate in determining how much the company might be fined, if the corporation is found guilty in the case. He said in the case of the 2010 BP spill in the Gulf of Mexico that killed 11 workers, the company in 2012 paid $4 billion in fines. BP also paid $50 million in enhanced fines associated with the 2005 Texas City refinery blast.

"We're pleased the U.S. attorney sought the alternative fines," he said. "That was very important to us" because it means shareholders will "probably have to pay more" for safety costs instead of customers. "That's more money going into safety improvements not being paid by ratepayers."

$2.5 billion estimate

The current estimated costs associated with multiyear pipeline inspection and replacement of lines in PG&E's system are well above $2.5 billion in the wake of the explosion. The legal settlements for victims and their families were about $500 million.

The lead attorneys for the victims and their families, Frank Pitre and Steve Campora, both said the fine will likely be $1 billion or greater.

But fines are not enough, Pitre said, because they just get passed on to shareholders.

"The only time there is going to be deterrence, is when somebody goes to jail," Pitre said. "The threat of billions of dollars in penalties has yet to get their attention. Jail - that's the ultimate measure-sender when it comes to companies like PG&E."

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